RPI running at 5.2% – what are the implications for pay settlements?

The median for pay settlements has been running at about 2.5%; that figures varies a little depending on the source. But RPI has been running above 5% for two months now – should that be reflected in pay settlements?

My view is “no” and for several reasons:

  • While commentators are expressing concern that a continuing increase in RPI might put pressure on pay settlements going forward, that does not seem to have been the case to date. Other pressures, such as job insecurity, are currently working in the other direction.
  • Some of the increase is due to holiday expenses over a period where fares rose (and had to be paid for) and also due to increases in duty on alcohol and tobacco. These are discretionary expenses and employers may legitimately view these differently from essential household expenditure, especially if employers themselves are squeezed by pressures on the business.
  • The cost of appliances, products for personal care, and for services have a downward trend, compensating for increases elsewhere.

There are, of course, some upward pressures mainly the cost of fuel and some housing costs.

Balancing these gives rise to the argument that 2.5% is still as appropriate as it has been.

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